US SEC Breaks Silence On Certain Cryptocurrency Exchanges

On
March 7, 2018, the staff of the Divisions of Enforcement and Trading and
Markets of the Securities and Exchange Commission (SEC) issued a public
statement regarding exchanges and other secondary trading platforms that list
and/or facilitate the trading of coins and tokens online.

The
statement emphasizes that platforms offering the trading of digital assets that
are securities, including many (if not all) coins and tokens issued through
initial coin offerings (ICOs), must register with the SEC as a national
securities exchange or operate under an exemption from such registration.

The SEC
statement addresses an apparently widespread misunderstanding that industry
participants could operate such online coin or token exchanges without
registering as an exchange, alternative trading system (ATS), or broker-dealer.

We
expect the SEC statement to impact primarily coin and token exchanges.

The SEC
statement specifically mentions "coins and tokens offered and sold in
so-called [ICOs]" as digital assets for "investors" and the
platforms where those assets may be exchanged as providing "a mechanism
for trading assets that meet the definition of a `security' under the federal
securities laws."

In
light of the SEC staff's statement, we believe industry participants should
expect to see the SEC begin to bring enforcement actions against coin and token
exchanges that do not register with the SEC or otherwise come into compliance
with the federal securities laws.

We note
that the SEC staff in the statement "encourages market participants who
are employing new technologies to develop trading platforms to consult with
legal counsel to aid in their analysis of federal securities law issues and to
contact SEC staff, as needed, for assistance in analyzing the application of
the federal securities laws."

In
light of the SEC's increasing focus on coin and token issues, we likewise
advise clients to carefully consider the securities law implications of their
activities in this area, and to engage with the SEC staff when appropriate to
discuss those activities. We will continue to monitor developments in this
space.

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